California Middle Class Tax Refund question

[PK2K]

Just to clarify a bit further because the instructions were initially confusing because the California Schedule CA seemingly doesn't have Lines 28 & 29 for income adjustments... So, while in Forms mode, as mentioned, proceed to line 8z where you should already see the refund amount from the 1099-MISC. You want to then use the 'magnifying glass' to go to the underlying 'California Other Income Statement' (Top left hand corner will indicate that it's for 'Schedule CA, Section B, Line 8z) and this is where you'll see the Line 28 for the 'Middle Class Tax Refund' being referred to in the previous reply. Sample screenshots are attached showing both 1) Lines 28 & 29 of the Supporting 'California Other Income Statement' Form and 2) the resulting Schedule CA Line 8z

[davidnknudson]

Question on the California Middle Class Tax Refund:  if you itemize deductions, can you net the refund against other State and Local Tax deductible amounts?  or maybe it doesn't make a difference.  Thanks for giving the way to take it off the California form on schedule CA - adjustments.   Wouldn't be surprised if Turbo-Tax comes up with an update to handle it.

[SharonD007]

No, you are not able to net your Middle Class Tax Refund against any other state or local taxes that you paid.

[bblailock]

I did not find is under schedule Ca but under other income form.

[JamesG1]

You are correct.  You find the California Middle Class Tax Refund under the income forms.  However, the refund will not be taxable on the California or Federal tax returns.

Follow these steps:

• Select Federal from the left side menu.
• Click on Wages & Income.
• Scroll down to Other Common Income.  Click Show more.
• Click Start / Revisit to the right of 1099-Misc.
• At the screen Does one of these uncommon situations apply? select This was a California Middle Class Tax Refund.

The California Middle Class Tax Refund will not be taxable on your California or Federal returns.

View the entries at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets.

@bblailock

[bcgoss]

After following the instructions provided, the income from my CA-MCTR is still included in my taxable income and it increased my taxable income in my CA state return.  Is there still some glitch in the TT program or do I need to manually add an adjustment to my income on Schedule 1, Part II, Adjustments to Income Line 24z?

[DianeW777]

Since this is a tax refund from California (CA), it would seem the income was already taxed on your federal return when you earned the income.  However, if you deducted the CA tax on your federal return, as an itemized deduction or as a business expense, then it could be considered taxable income when refunded, if necessary, under the Tax Benefit Rule.

• Tax benefit rule.  IRS Publication 525  You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year.

1099-MISC income tax information (CA Update 2022) Individuals who received a California Middle Class Tax Refund (MCTR) of $600 or more will receive a 1099-MISC for this payment.

If you decide you received no tax benefit then you do not need to enter the income.  Keep the document with your tax file should you need it later.  The following shows how to remove it from CA if you do enter it for federal purposes.

Taxable income

The MCTR payment is not taxable for California state income tax purposes. You do not need to claim the payment as income on your California income tax return.  The MCTR payments may be considered federal income.

If you determine it is not taxable on your federal return, then keep the document but remove or delete it from your federal return. If it is taxable on your federal return, the when you get to the CA return you can subtract it out using the steps below.

1. Complete your CA return until you reach the screen 'Here's the income that CA handles differently'
2. Scroll until you see Miscellaneous > continue scrolling to 'Other Adjustments to Income' > Start or Revisit
3. Enter your description (MCTR) and enter the amount under the 'Subtraction' column
4. Continue to complete your CA return

@bcgoss